Why is 99% of Your Portfolio Invested in the World’s 39th Best Stock Market?

Long-time readers of The Global Guru know that I track 47 global stock markets on a daily basis.

I limit the list to countries in which you can buy exchange-traded funds (ETFs) in your U.S. brokerage account. I’ve also written before about how remarkably the U.S. stock market has outperformed the rest of the world over the past decade.

For the U.S. stock market, I look at the Vanguard Total Stock Market ETF (VTI). That’s because it includes small- and mid-cap stocks, providing a complete view of the U.S market than, say, the S&P 500.

Among these 47 global stock markets, at the close of 2016, VTI ranked No. 1 over 10 years, No. 2 over five years (behind Ireland) and No. 1 over three years. Until last year, investing outside the United States had been a sucker’s bet for an entire decade!

But 2017 may have marked a turning point. So far this year, the U.S. stock market sits at a lowly #39 out of #47 with a gain of 7.26% year to date.

The Home Country Bias

If you are a U.S. investor, sticking with the U.S. stock market over the past decade has been easy to do. It also has been a winning bet.

But the real reason it has been easy is that you — like all investors — suffer from a “home country” bias: the preference to invest in your own country’s stock markets.

I recall reading a financial magazine in Hungary, which tried to convince its readers to invest outside of the local stock market.

This recommendation was for investors in a country with a population of less than 10 million where two-thirds of the trading in the local stock market happens in two stocks: the national oil company and the national savings bank.

But if negative sentiment is a necessary contrarian indicator, you could hardly ask for a better setup.

Global stock markets are very cheap.

It is no secret that the U.S. stock market is expensive compared to the rest of the world. According to Star Capital Research, the U.S stock market is the 37th most expensive in the world out of the 39 stock markets it tracks. Only Denmark and Ireland ask investors to pay up more for future earnings.

Star Capital Research bases this on its calculation of Robert Shiller’s Cyclically Adjusted Price Earnings Index (CAPE). The Shiller-CAPE Index is defined as price divided by the average of 10 years of earnings (moving average), adjusted for inflation.

Think of it as a long-term average price-to-earnings (P/E) ratio.

Few things are predictable in investing. But given enough time, cheap stocks will get more expensive. Expensive stocks will get cheaper.

Academic studies have confirmed that the Shiller-CAPE Index explains future real stock market returns both in the United States, as well as developed global and emerging markets.

Today, the U.S. stock market trades at a Shiller-CAPE index price-to-earnings (P/E) ratio of 27.5. That’s an eye-popping 64% above its historical average.

In contrast, the Shiller-CAPE Index stands at a mere 14.9 for emerging markets.

As analyst Raoul Pal has pointed out, you can buy the entire Greek stock market for the price of a single U.S. mid-cap stock like Bed Bath & Beyond Inc. (BBBY).

Global Stock Markets Have Turned Up and You Probably Haven’t Noticed.

Chances are you’ve focused on U.S. stocks in 2017 more than ever.

After all, the “Trump Bump” gave you love until St. Valentine’s Day. And by some measures, U.S. investors have not had this much appetite for risk in 20 years.

But solid returns in the U.S. stock market tell you nothing about how much money you could have made investing elsewhere.

Yes, the Vanguard Total Stock Market ETF (VTI) has gained 7.26% year to date.

But the Vanguard FTSE Emerging Markets ETF (VWO) is up 11.68% so far in 2017.

And specialist funds that focus on the world’s cheapest stocks like the Cambria Global Value ETF (GVAL) are up by an even more impressive 14.46%.

So is 2017 the year that global stocks begin to make their long-awaited comeback?

The signs are as good as they have been for a long time.

And, who knows, after a few years of leaving the U.S. stock market in the dust, “global” could cease to be a dirty word in investing.

P.S. Global stock markets today are all about momentum. As is my new trading service, Momentum Trader Alert. With 29 of the 47 global stock markets I track up by at least double-digit percentages so far this year, you can be sure that you’ll see a lot of global stock picks in the service in the months ahead. To find out more, please click here.

Get Access to the Report, 100% FREE

By: Matt Thalman
Should you follow Warren Buffett's lead and sell your shares of International Business Machines Corporation(NYSE:IBM)?
A key to the answer is the current valuation of the IBM shares. Also consider that Buffett generally stays away from technology companies, since he admits to not fully understand them and their prospects.
But six years ago, Buffett announced he was building a stake in a well-known technology company,

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen publishes 5 different investment newsletter advisories, including the award-winning Forecasts & Strategies, which has beaten the market over the last 15 years.

Product Details

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays. Bryan's four newsletter and trading services include:

Product Details

Bob Carlson

In Bob's monthly newsletter, Retirement Watch, he provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

With decades of Wall Street experience, we publish investment newsletters and website articles offering advice on the best stocks, options, ETFs and mutual funds to invest in for both dividends and capital gains.